A comparative study of the returns on Mudharabah deposit and on equity in Islamic banks

Purpose – The paper aims to compare the return on Mudharabah deposits (ROMD) to the return on equity (ROE) in Islamic banks. Design/methodology/approach – The summary statistics of the ROMD and the ROE is used to make a comparison between them with a sample of nine Islamic banks, from seven countries, over the last five years. Regression analysis is also undertaken to unveil the variables affecting the behaviour of ROMD and ROE at Kuwait Finance House. Findings – The results show that the ROE tend to be at least two times higher than the ROMD. In most of the investigated cases the ROMD are more correlated to the corresponding conventional interest rate than to ROE. The regression analysis suggests that the return on assets affects more significantly the ROE than the ROMD. Originality/value – The originality of the paper resides in the size of the sample and in the design and the findings.